Don't Get Spooked By October or Weak Dollar

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Includes: DJP, FXC, FXE, GLD
by: Gary Gordon

One of the best aggregators of financial info in the blogosphere is Charles Kirk of the KirkReport.com. If I want to read a variety of positions on the falling U.S. dollar, I peruse the pages of the Kirk Report. If I want to find out why Bill Gross of world-renowned Pimco fame is pining for additional rate cuts, I go see Chuck as well. (And I'm not talking about Charles Schwab here!)

Why do I read other web logs? Simply put, broad-based editorial and financial news help to solidify my own presentation for the exchange-traded fund world.

For example, there's a lot of misguided fear centered on the month of October. The Kirk Report aggregates the scary particulars -- both the rational fears and the irrational fears.

Irrationally, fear-mongerers often try to draw parallels between today's weak U.S. dollar/above-comfort-level inflation with the weakening U.S dollar/rising inflation of October 1987. (Many blame the October 19, 1987 crash on disputes over propping up the U.S. dollar.) A bit more rationally, however, some will discuss today's housing recession as being similar to housing/lending conditions in 1929.

So how might this pertain to ETFs? How might I help others interpret and profit from broader-based money talk?

In this instance, we can take what we know and run with the info... ETF-style! Specifically, most professionals tend to agree upon the idea that the U.S. dollar will continue to weaken against major currencies.

I've been saying this throughout the year in my posts. And one way an ETF-investor can profit is through the lower-risk, bond-like, Currency Shares. My clients have profited handsomely from the CurrencyShares Canadian Dollar Trust (NYSEARCA:FXC) and the CurrencyShares Euro Dollar Trust (NYSEARCA:FXE).

If and when the U.S. dollar falls, commodity prices that are prices in U.S. dollars tend to rise. The Dow Jones AIG Commodity Index (NYSEARCA:DJP) has been setting new highs, as has the streetTRACKS Gold Shares (NYSEARCA:GLD).

Last, but certainly not least, continued rate cuts by the U.S. Federal Reserve is a "which-came-first-chicken-or-the-egg" event for the U.S. dollar; that is, rate cuts often weaken a country's currency, possibly leading to stagflation such that an inflation-prone economy fails to show meaningful growth.

Long-term value investors may look to profit from drastic rates cuts in the banks via the KRW Bank Index (NYSEARCA:KBE). Inflation-hedgers might look to inflation-protected treasury bonds in the iShares Lehman TIPS Bond Fund (NYSEARCA:TIP).

Finally, international stocks tend to benefit from stronger currencies in the homeland. But, if you are wary about a U.S. based recession affecting the profitability of multinationals, stick with the safest companies on the planet; specifically, it's hard to go wrong with the iShares S&P Global Consumer Staples Fund (NYSEARCA:KXI).

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above.